The US financial agency lends a port in Sri Lanka to counter Chinese influence

A U.S. foreign development agency said Wednesday it will lend $553 million to build a deepwater container terminal at Sri Lanka’s Colombo Port, expanding U.S. efforts to finance infrastructure around strategic parts of Asia.

The loan package is linked to Adani Ports, part of a conglomerate closely linked to Prime Minister Narendra Modi of India and still reeling from January’s onslaught of short sellers. Adani will help develop the terminal together with Sri Lankan partners.

The money from the U.S. International Development Finance Corporation resembles the kind of big deals Chinese development banks have been making around the world over the past decade. Under the Belt and Road Initiative, which was central to President Xi Jinping’s foreign policy, China provided loans to build ties with Asia, including Sri Lanka. Now the United States, and to some extent India, plans to catch up – or even improve.

The Development Finance Corporation was created during the Trump administration to finance international infrastructure projects and work with the State Department to support U.S. foreign policy and curb Chinese influence.

“The realities in this region and for global trade make this a critical addition to our global infrastructure,” Scott Nathan, CEO of the US agency, told a news conference in Colombo, the Sri Lankan capital. He was joined by Karan Adani, the CEO of Adani Ports and a son of the group’s founder, Gautam Adani, who went a step further in his comments and appeared to invoke defense considerations by saying that the additional half a billion dollars would be ‘regional symbolizes safety’. .”

While they took turns describing how the loan demonstrates America’s and India’s commitment to this debt-ridden island nation and to the rest of the Indo-Pacific, they did not mention China by name, but there was no need to.

An international port project has special significance for Sri Lanka. Located at a watershed between the Strait of Malacca and the Suez Canal, the country sees about half of the world’s trading ships pass by. The port of Colombo, the busiest on the Indian Ocean, has been operating at 90 percent capacity for years.

Under the Rajapaksas, the ruling family that led Sri Lanka until the country’s economy collapsed in 2022, Chinese banks and engineering firms built a massive deepwater port on the island’s relatively remote southern coast. Hambantota, the name of that project, was the white elephant in the room during today’s opening statements.

Built at a cost of more than a billion dollars and on terms that Sri Lanka could never repay, Hambantota, located in a stronghold of Rajapaksa’s political power, was eventually forfeited to China under a 99-year lease, along with 15,000 hectares of nearby land. . In 2020, before the pandemic disrupted trade, the port handled just 1.2 million tons of cargo per year. The Port of Colombo handles more than 30 million tons of cargo annually and plans to quadruple that amount with new terminals.

Hambantota has become a hallmark of what President Biden called China’s “debt trap diplomacy” at the first Americas Partnership for Economic Prosperity Leaders’ Summit in Washington last week.

Mr. Nathan told the news conference that the Biden administration’s infrastructure investments are “transparent and do not burden countries with debt at the state level.”

India, too, has its eyes on China as it struggles to gain or maintain influence in the rest of South Asia. Indian and Chinese diplomats have long tried to profile their countries as the indispensable partner of Sri Lanka, Bangladesh and Nepal.

The US loan means we are moving closer to the way India finances long-term projects. Under Mr. Modi, that meant doing a lot of business with the country’s largest conglomerates. One of the most prominent is the Adani Group, which had seen its share price rise 2,500 percent in five years until it was hit by a report released in January by New York-based Hindenburg Research accusing the conglomerate of stock manipulation and accounting fraud.

Adani Group’s value plummeted and a public offering had to be cancelled. At the time, the company accused its foreign critics of launching a “calculated attack on India” that reflected “contempt for Indian institutions.” Most of the conglomerate’s shares are still trading well below their peaks, and Mr Modi no longer appears in public alongside Gautam Adani. But the conglomerate’s finances have stabilized and some of its constituent companies, including Adani Ports, have recovered their market value.

The Biden administration’s willingness to do business with Adani Group could improve the company’s reputation abroad. Karan Adani said the port deal was a “reaffirmation by the international community of our vision, capacity and governance”.

Washington’s willingness to finance a complicated and strategic infrastructure deal also marks a step forward for its ambitions in the region. It seems to confirm Mr Adani’s view: “The relationship between Sri Lanka, the US and India is multi-faceted and promising.”